Required

Use the information in the income statement and balance sheets of XYZ Ltd. to calculate the various individual accruals and reconcile the net income ($547) with the cash flow from operation ($2,386) for the year 2010. For each accrual indicate the extent to which that accrual may contain a discretionary component and explain why.

ACCT 780 B Final Exam.word (page 5 of 7) Shown below are the income statement and comparative balance sheets of XYZ Ltd., from its 2010 annual report. The 2010 cash flow statement of XYZ Ltd. (not shown) reports operating cash flow as $2,386. XYZ Ltd. Income Statement Year Ended December 31, 2010 Revenues $11,684 Cost of goods sold 9,073 Gross profit 2,611 General and administrative expenses 1,346 Amortization 276 Interest 16 1,638 Operating profit .973 Equity income from affiliates 165 Other income ..2.2 217 Income before income taxes and extraordinary items 1,190 Income taxes: Current 584 Future 59 643 Income before extraordinary items 547 Extraordinary items Net income for year $547ACCT 780 B Final Exam.word (page 6 of 7) XYZLtd. Balance Sheets As at December 31 2010 2009 Assets Current assets: Cash $693 $ Accounts receivable 2, 107 3.464 Income taxes recoverable 506 Inventories 810 410 Prepaid expenses 61 99 3,671 4,479 Investments in affiliated companies 405 203 Machinery and equipment 1,532 1,632 $5,608 $6,314 Liabilities Current liabilities: Bank indebtedness $ $1,291 Accounts payable 398 497 Income taxes payable 282 34 Liability for future income taxes 83 64 763 1,886 Future income tax liability 62 22 825 1,908 Shareholders' Equity Share Capital 2,268 2,268 Capital contributed on issue of warrants 80 80ACCT 780 B Final Exam.word (page 6 of 7) Retained earnings 3,895 3,275 Excess of appraised value of fixed assets over amortized cost 1,175 1,307 7,418 6,930 Less: Cost of shares purchased 2,635 2,524 4,783 4,406 $5,608 $6,314 Required Use the information in the income statement and balance sheets of XYZ Ltd. to calculate the various individual accruals and reconcile the net income ($547) with the cash flow from operation ($2,386) for the year 2010. For each accrual indicate the extent to which that accrual may contain a discretionary component and explain why